Your retirement fund is now obliged to offer you “counselling” when you resign or retire from your employer.
Don’t shun this opportunity to learn a few things for free.
You don’t have to act on anything you are told or buy any financial products, but it is likely you will get some valuable information to think about.
Happy Ngale, the operations manager for financial well-being at Alexander Forbes, says during counselling you will be provided with information about your options, fees and costs in simple and clear language. You can use that information for better decision making.
“Many members have made the poor decision of withdrawing their funds because they didn’t appreciate the impact on their retirement income, or understand the negative tax implication,” Ngale said.
For example, did you know that if you have saved R100,000 in your retirement fund and you draw it out before retirement age, you will pay R13,500 to the South African Revenue Service?
But if you make a plan to keep saving your money in a retirement fund, you won’t pay that tax. This can make a huge difference when you reach retirement for these reasons:
- You will have more money saved to set up a pension.
- The money you don’t cash out and don’t pay to SARS will earn returns that are tax-free for all the years that you have left until retirement.
- The reinvested returns will earn returns – they will compound for all the years you have left until retirement.
Retirement benefits counselling should inform you what impact cashing your savings out will have on your future pension. It is not an exact science, but assumptions about what you will save and the returns you will earn until retirement as well as the cost of setting up a pension can be used to work it out. Some funds have tools to help you work this out yourself.
Up until March this year, you often only had two choices if you decided to keep on saving or preserve your retirement fund benefits – to move your money to a retirement annuity or a preservation fund. Financial advisers can guide you through these choices, but if you don’t have a trusted adviser, the options can be daunting.
Now all funds are obliged to provide two more much easier options – you can simply leave your money in the fund you are leaving, or, if you are changing jobs, you can move your savings to your new employer’s fund.
Your money in any retirement fund does not belong to an employer as the fund is a separate legal entity governed by trustees.
However, there may still be reasons you don’t want to stay with the fund sponsored by a former employer - the trustees may be governing the fund poorly and/or the employer may be in financial trouble and default on paying over contributions.
If you are simply moving on in your career and are a member of a well-run, cost-efficient fund that provides access to a retirement benefits counsellor face to face or on the phone, ask him or her to give you enough information to compare the fund to the one your new employer offers.